Cfa Level 1 Reading 13 Price Elasticity

Front 1

Price Elasticity of Demand
Perfectly Elastic

Back 1

Magnitude: Infinity
The smallest possible increase in price causes an infinitely large decrease in the quanitity demanded

Front 2

Price Elasticity of Demand
Elastic

Back 2

Magnitude: Less than infinity but not greater than 1
The percentage decrease in the quantity demanded exceeds the percentage increase in price

Front 3

Price Elasticity of Demand
Unit Elastic

Back 3

Magnitude: 1
The percentage decrease in teh quantity demanded equals the percentage increase in price

Front 4

Price Elasticity of Demand
Inelastic

Back 4

Magnitude: Greater than zero but less than 1
The percentage decrease in teh quantity demanded is less than the percentage increase in price

Front 5

Price Elasticity of Demand
Perfectly inelastic

Back 5

Magnitude: zero
The quantity demanded is the same at all prices

Front 6

Cross Elasticities of Demand
Close Substitutes

Back 6

Value: Large
The smallest possible increase in teh price of one good causes an infinitely large increase in the quantity demanded of the other good

Front 7

Cross Elasticities of Demand
Substitutes

Back 7

Value: Positive
If the price of one good increases, the quantity demanded of the other good also increases

Front 8

Cross Elasticities of Demand
Unrelated Goods

Back 8

Value: Zero
If the price off one good increases, the quantity demanded of the other good remains the same

Front 9

Cross Elasticities of Demand
Complements

Back 9

Value: Negative
If the price of one good increases, the quantity demanded of the other good decreases

Front 10

Income Elasticities of Demand
Income elastic (normal good)

Back 10

Value: Greater than 1
The percentage increase in the quantity demanded is greater than the percentage increase in income

Front 11

Income Elasticities of Demand
Income inelastic (normal good)

Back 11

Value: Less than 1 but greater than zero
The percentage increase in the quantity demanded is less than the percentage increase in the income

Front 12

Income Elasticities of Demand
Negative income elastic (inferior good)

Back 12

Value: Less than zero
When income increases, quantity demanded decreases

Front 13

Elasticities of Supply
Perfectly elastic

Back 13

Magnitude: Infinity
The smallest possible increase in price causes an infitely large increase in the quanntity supplied

Front 14

Elasticities of Supply
Elastic

Back 14

Magnitude: Less than infinity but greater than 1
The percentage increase in the quantity supplied exceeds the percentage increase in teh price

Front 15

Elasticities of Supply
Inelastic

Back 15

Magnitude: Greater than zero but less than 1
the percentage increase in teh quantity supplied is less than the percentage increase in the price

Front 16

Elasticities of Supply
Perfectly inelastic

Back 16

Magnitude: zero
The quantity supplied isthe same at all prices

Front 17

Elasticity

Back 17

the measure of the responsiveness of the quantity demanded of a good to a change in its price, other things remaining the same.

Front 18

Price elasticity of demand

Back 18

equals the percentage change in the quantity demanded divided by the percentage chang in price.

Front 19

Magnitude of price elasticity

Back 19

the large the magnitude of the price elasticity of demand, the greater is the responsiveness of the quantity demanded to a given change in price.

Front 20

Price elasticity of demand

Back 20

depends on how easily one good sersves as a substitute for another, the proportion of income spent on the good, and the length of time elapsed since the price change.

Front 21

If demand is elastic

Back 21

a decrease in price leads to an increase in total revenue. If demand is unit elastic, a decrease in price leaves total revenue unchanged. And if demand is inelastic, a decrease in price leads to a decrease in total revenue.

Front 22

Cross elasticity of demand

Back 22

measures the repsonsiveness of demand for one good to a change in the price of a substitute or a complement, other things remaining the same

Front 23

The cross elasticity of demand

Back 23

with respect to the rpice of a substitute is prositive, hte cross elasticity of demand with respect to the price of a complement is negative

Front 24

Income elasticity of demand

Back 24

measures the repsonsiveness of demand toa change in income, other things remaining the same, for a normal good, the income elasticity of demand is positive, for an inferior good, the income elasticity of demand is negative.

Front 25

Income elasticity of demand

Back 25

when the income elasticity of demand is greater than 1 (income elastic), the percentage of income spent on the good increases as income increases.

Front 26

Income elasticity of demand

Back 26

when the income elasticity of demand is less than 1 (income inelastic and inferior), the percentage of income spent on the good decreases as income increases.

Front 27

Elasticity of supply

Back 27

measures the responsiveness of the quantity supplied of a god to a change in its price.

Front 28

Elasticity of supply

Back 28

the elasticity of supply is usually positive and ranges between zero (vertical supply curve) and infinity (horizontal supply curve).

Front 29

Supply decisions

Back 29

have three time frames:
momentary
long run
and short run

Front 30

Momentary Supply

Back 30

refers to the response of sellers toa price change at the instant that the price changes.

Front 31

Long-run supply

Back 31

refers to the response of sellers toa price change when all the technologically feasible adjustments in prodicion have been made.

Front 32

Short-run supply

Back 32

refers to the response of sellers toa price change after some of the technologically feasible adjustments in production have been made.